We’ve now entered a new tax year. Whilst some changes were made during the 2020 Budget, other allowances and exemptions have stayed the same. Planning can help you make the most out of your finances over the next 12 months. So, which allowance should you keep in mind?

1. Personal allowance and National Insurance

The personal allowance for the new tax year remains the same at £12,500. This is the amount you can earn before Income Tax is due. Existing tax rates and thresholds are also unchanged. However, the National Insurance threshold has been increased, from £8,632 to £9,500, meaning 500,000 people will no longer pay the tax.

2. Savings allowance

Depending on how much you earn, your annual savings allowance could be up to £6,000, allowing you to save and receive interest tax-free.

This is made up of two parts. The first is the personal savings allowance. If you’re a basic rate taxpayer you can earn up to £1,000 in interest per year with no tax. For higher-rate taxpayers, the allowance falls to £500, whilst additional rate taxpayers don’t have an allowance. As a result, around 95% of savers shouldn’t pay tax on their savings.

For low-income individuals, the starter savings rate can be as high as £5,000. However, for every £1 you earn over the personal allowance (£12,500) the allowance will reduce by £1. As a result, it’s only suitable for those with an income of less than £17,500.

3. ISA allowance

In addition to the above savings allowances, your ISA allowance should play an important role in financial plans for most people. For the current tax year, you can save £20,000 into ISAs as there were no changes made in the Budget. Any interest or returns made in an ISA are free from tax. You can choose to deposit the full amount into a single ISA or spread the allowance over several. As you can save cash or invest through an ISA, these accounts provide you with the flexibility to choose an option that suits your goals.

The Chancellor did make a change to Junior ISAs though. In the previous tax year, you could place up to £4,368 into a JISA per child. This has now been increased to £9,000, perfect if you’re building a nest egg for children or grandchildren. Like adult counterparts, any interest or returns earned are tax-free.

4. Pension Annual Allowance

There was no change to the maximum pension Annual Allowance, which remains at £40,000. However, there was a significant change in the Tapered Annual Allowance that may limit how much you can tax-efficiently save into a pension each tax year.

Both the threshold income and adjusted income thresholds for the Tapered Annual Allowance were increased by £90,000, taking them to £200,000 and £240,000 respectively. For many pension savers affected by the Tapered Annual Allowance last year, this change will allow them to save more tax-efficiently for their retirement in 2020/21. But the minimum reduced Annual Allowance has fallen from £10,000 to £4,000. As a result, some high earners will find their allowance has been cut. Please contact us to discuss your circumstances.

5. Capital Gains Tax allowance

Capital Gains Tax (CGT) is the tax you pay when you sell certain assets and make a profit. This could include investments that are not held in an ISA or a second property. The rate of CGT depends on the type of asset you sell and Income Tax rate, but it can be as high as 28%. As a result, making use of your annual allowance is important.

The CGT allowance for 2020/21 has increased slightly from the last tax year to £12,300. If you plan to dispose of assets over the next 12 months, it’s worth keeping this figure in mind. If you plan to sell property, you should also note that you now have to pay CGT on property sales within 30 days.

6. Dividend allowance

If you own shares in a company that makes dividend payments, your dividend allowance remains the same for 2020/21. You can receive up to £2,000 in dividends before any tax is due on them. This includes paying yourself £2,000 in dividends if you’re a company director too. Dividends above the allowance will be taxed according to your marginal tax rate.

7. Entrepreneurs’ relief

For the current tax year, there have been significant changes made to entrepreneurs’ relief. If you have plans to sell or give away your company these are important.

Entrepreneurs’ relief means you can pay less CGT when selling your business under certain circumstances. Previously, you would have been charged 10% on the first £10 million of gains, with gains above this limit being taxed at the usual 20%. However, entrepreneurs’ relief for 2020/21 has been cut to a far less generous £1 million. As a result, some business owners planning to sell will now face far higher CGT.

The entrepreneurs’ relief applies to an individual level, so that a £1 million allowance is the maximum you can claim per person, rather than for each business you sell.

8. Gifting annual exemption

If you’re worried about the impact of Inheritance Tax on your legacy, gifting during your lifetime can help you reduce the bill.

Each year individuals can make use of the annual exception that allows you to gift up to £3,000 a year tax-free. This gift is considered immediately outside of your estate for Inheritance Tax purposes. Other gifts are also immediately exempt from Inheritance Tax, including those up to £250 per person and those made from your income.

Gifts given outside of these allowances are known as Potentially Exempt Transfers. If you live for seven years after giving the gift, these are considered outside of your estate. However, if you die within seven years, they may be considered part of your estate for Inheritance Tax purposes.

Setting out your plans for the year ahead

Whilst the end of the tax year is often characterised by people making the most of their allowances, there are benefits to planning how you’ll use them at the beginning of the year. If you plan to use your ISA allowance by investing in a Stocks and Shares ISA, for example, it allows you to drip feed regular amounts in over the next 12 months. Reviewing your financial plan for the year ahead now can help you feel more confident in the steps you’re taking. Get in touch with us to discuss your financial plan for 2020/21.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

While the coronavirus pandemic has affected the health of hundreds of thousands of people worldwide, it has also had a devastating effect on small and medium-sized businesses in the UK and beyond.

Following a £12 billion package of measures announced in the Budget, the Chancellor has since unveiled a substantial support package designed to help businesses survive during this uncertain period.

If you’re a small business owner, there is help available from the government and beyond. Here’s a summary of the support on offer.

Coronavirus Job Retention Scheme

In a measure unprecedented in modern times, the Chancellor announced a ‘job retention’ scheme in which the government will pay up to 80% of the salary of ‘furloughed’ workers.

If you have essentially laid-off workers temporarily, and you notify employees of this change, HMRC will refund 80% of these workers’ wage costs, up to a cap of £2,500 per month, for three months.

It means that if you intend to re-employ your staff when your business reopens, the government will pay up to 80% of their wages in the interim.

Note that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.

Statutory Sick Pay

Businesses with fewer than 250 employees (at 28 February 2020) can reclaim the cost of any Statutory Sick Pay (SSP) caused by the coronavirus (up to a limit of 14 days per individual). This will be refunded to the company, in full, by the government.

In order to be eligible for the changes to Statutory Sick Pay, you must keep records of the employee’s absence and SSP payments, but the employee will not need to provide a doctor’s note. 

VAT deferral

All businesses in the UK can defer their Valued Added Tax (VAT) payments for three months.

This deferral will apply from 20 March 2020 until 30 June 2020 and is an automatic offer (you don’t need to apply). You will be given until the end of the 2020/21 tax year to pay any liabilities that have accumulated during the deferral period.

Business Interruption Loans

A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £5m to support SMEs, for up to six years. The business loan scheme will be delivered by the British Business Bank and businesses will access the loans via their high street bank or one of 40 accredited finance providers by requesting a government-backed business interruption loan.

The government will pay to cover the first 12 months of interest payments and any lender-levied fees, so businesses will not face any upfront costs and will benefit from lower initial repayments.

To be eligible for a business interruption loan you must:

• Be based in the UK with an annual turnover of no more than £45 million
• Meet the other British Business Bank eligibility criteria

Business Rates Support

All retail, leisure and hospitality companies in England will be exempt from business rates for the 2020/2021 tax year. Nursery businesses will also be exempt from business rates in 2020/21.

If you have a business in the retail, hospitality or leisure sector with a rateable value of less than £15,000 then a cash grant from the government of £10,000 will be made available. If the rateable value of your business in these sectors is £15,000 to £51,000 then a £25,000 grant is available. Speak to your local authority to check your eligibility.

The £3,000 grant announced in the Budget for businesses that qualify for Small Business Rate Relief or Rural Rate Relief has been increased to £10,000. This will be administered by the local authority from early April and, if you’re eligible, you will be contacted directly and do not need to apply.

Other Budget announcements

In addition to emergency measures to tackle the coronavirus outbreak, there was other good news for small businesses.

The government also announced that it is delivering on its commitment to increase the Employment Allowance to £4,000. This means that businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).

The Chancellor also confirmed that the Corporation Tax rate would remain at 19%.

Other support

Facebook for Business grants

During the coronavirus pandemic, and to help up to 30,000 eligible small businesses in over 30 countries where they operate, Facebook are offering $100m in cash grants and ad credits.

The social media giant will begin taking applications in the coming weeks. In the meantime, you can sign up to receive more information when it becomes available.

Throughout February there was one key global headline that had an impact on stocks, the coronavirus.

What began in China a couple of months ago has spread across the world, including Europe, by the end of February. The International Air Transport Association has already warned that the virus could cost the industry nearly $30 trillion. Companies in a huge variety of areas have stated their operations will be affected too, from Apple to Burberry.

Over the course of the month, stocks have plummeted, in fact, £35 billion was wiped off the FTSE 100 on 25^th February alone.

Whilst that can be a worry, it’s important to keep in mind that short-term volatility does happen. For most investors, sticking to a long-term financial plan is the best course of action. If you have concerns, please contact us.

UK

The big news this month was the resignation of Sajid Javid as Chancellor following a proposal that he sacks all his advisers. He’s been replaced by Rishi Sunak, who has just a few weeks to prepare for the Budget on 11^th March.

Brexit uncertainty continues to have an impact, as Prime Minister Boris Johnson prompted fears of a hard Brexit early in the month. It’s an issue that’s likely to continue affecting markets throughout the year as a trade deal between the UK and EU is hashed out. Political uncertainty, almost with a slowing Eurozone, meant GDP stagnated in the final quarter of 2019.

Whilst not the growth investors would hope for, there are signs that the UK economy is gradually recovering and moving away from the possibility of a recession. Of course, much of what happens in the coming months will depend on how trade deals progress.

• UK construction fell at the slowest pace since May, registering a PMI of 48.4, but continues to contract
• Manufacturing was slightly stronger than expected in December with a PMI of 50, the point that suggests growth rather than contraction
• The service sector sported the strongest PMI since 2018 at 53.3
• House prices were also higher than expected, following a rise of 0.4%, according to Halifax following a 4.1% increase year-on-year.

Europe

Investor confidence across Europe fell for the first time in four months. It’s amid fears that the coronavirus will have an impact, with the barometer falling from 7.6 in January to 5.2, However, it’s still higher than last autumn when there were fears that a trade war would have an impact.

Overall, there has been good news in much of Europe this month. Following GDP growth in the fourth quarter of just 0.1% across the Eurozone, flash PMIs were expected.

However, European stalwart Germany is showing signs of weakening. The country’s GDP flatlined between October and December 2019. Deutsche Bank has also predicted that coronavirus could drive Germany’s economy into a recession this year.

US

Continuing the coronavirus news, a quarter of US firms say the virus will hit their profits by 16%, so the volatility experienced over the last few weeks could continue into spring.

The impact of the White House’s trade war with China has also become apparent. The US trade deficit in 2019 fell for the first time in 2019 as the ongoing tensions curbed imports. The trade deficit fell 1.7% over the year to $616.8 billion.

Focussing on the tech industry, Twitter hit a milestone this month. It logged $1 billion in quarterly revenue for the first time, following a 14% increase year-on-year. Share prices increased 6% following the annual earnings release.

Asia

So far, China is the country that’s been affected the most by the coronavirus. Inflation hit an eight-year high due to the impact of the virus. In a bid to boost the market that’s been under pressure for more than a month now, China cut tariffs on US goods worth billions of dollars that were introduced last year. Despite coronavirus, President Xi insists the country can still hit its growth targets.

Read our blog for more investment updates.

If you have any concerns about your investment portfolio in light of recent events, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

If you find yourself with a lump sum – perhaps through an inheritance, a bonus or because an investment has matured – you may be wondering what you should do with it.

One of the common questions that we’re asked is ‘should I pay off my mortgage with a lump sum, or should I invest it?’

As with all financial advice, there are pros and cons to both choices. However, before we consider the pros and cons of using a lump sum to invest or repay your mortgage, there are some other questions you should ask yourself first.

3 questions to ask before investing or repaying your mortgage

1. Do I have an emergency fund?

Experts recommend that you keep around three to six months’ salary in an emergency fund. This is an easy-access savings account where you can get hold of money quickly if you need it – for example, to replace your boiler or for car repairs.

If you don’t have an emergency fund, consider using some of your lump sum to create this financial safety net.

2. Do I have other debts?

If you have outstanding balances on a credit card or store card, or you have unsecured personal loans, then it’s likely that you’re paying a higher rate of interest on these borrowings than you are on your mortgage.

In this case, it may be a sensible choice to repay these debts off first, before you start thinking about making a capital repayment to your mortgage.

3. Am I contributing to a pension?

If you don’t already have a pension, or you are making less than the maximum contributions (typically 100% of your earnings or £40,000, whichever is lower) then it may be worth considering using some or all of your lump sum to make a pension contribution.

Pensions are an excellent way to save because of the tax relief you get from the government. So, if you do have a lump sum, paying into your pension might be a good place to start.

The pros and cons of repaying your mortgage with a lump sum

There are many complicated calculations that you can undertake to work out whether you will be financially better off by investing your money than you are paying off a lump sum.

In theory, if you can achieve a better return from your investment than the interest rate you are paying on your mortgage, then you could be better off investing. However, things are rarely that simple! Factors such as the type of mortgage you have, the term remaining and the type of investment you’re considering will all come into play, making an exact answer difficult to establish.

Firstly, if you’re considering paying a lump sum off your mortgage, you should establish whether you will pay any Early Repayment Charges (ERCs). If you’re on a special fixed, variable or tracker rate deal then it’s likely you will pay charges if you want to make a lump sum repayment to your mortgage.

Depending on your interest rate, ERCS can run into thousands of pounds and so this might influence your decision.

Even if no ERCs apply, paying a lump sum off your mortgage can be inflexible in that it can be difficult to get that money back in the future should you need it. You may then have to remortgage your home to get the money back, which can be a costly and difficult process.

There are advantages to repaying your mortgage with a lump sum. One of the most important is the psychological benefit of you feeling more secure in your home, knowing that you either have a much smaller mortgage, or that you own the property outright if you’ve paid off your mortgage in full.

If you have repaid your mortgage, then you will no longer have to make a monthly payment, and this could help you to budget if, for example, you’re heading into retirement or you anticipate a change to your income.

If you’re paying off a lump sum to reduce the size of your mortgage you typically have two choices:

• Keep the mortgage term the same and reduce your monthly repayments – paying a lump sum off your mortgage can help your cash flow on a monthly basis.
• Keep your monthly repayments the same and reduce the mortgage term – this will give you the security that your mortgage will be paid off more quickly than you originally anticipated.

The pros and cons of using your lump sum to invest

In a low interest rate environment, you may prefer to use your lump sum to invest. If you’re benefiting from a low rate on your mortgage – many deals are currently available at less than 2% interest – you may feel that investing your money for the long term may be a better option.

If you expect to invest for a long period, then there is certainly potential for growth. According to Vanguard, the average stock market return in the UK between 1997 and 2018 was 9.9% a year. This represents a healthy return over time, and certainly more than the interest rate you would currently pay on a mortgage.

Investing your lump sum can give you the ability to earn returns according to the level of risk you are prepared to take.

Of course, the value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investing your lump sum can be risky, and there are no guarantees.

One reason that you might not want to consider investing a lump sum rather than repaying your mortgage is if you are looking for a quick return. If your mortgage only has a couple of years left to run, it might not be suitable to invest for that short a period, as investments are typically recommended for the medium to long term.

Get in touch

If you have a lump sum and you’re not sure what to do with it, get in touch with us.

Every client’s circumstances are unique, and you will have different priorities, goals and circumstances to another investor. The right advice will depend on your specific situation and what your long-term plans are, and so it can pay to speak to a professional.

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Last month saw the launch of the latest new polymer banknote in the UK. The new £20 note was released in late February and becomes the third new banknote to enter circulation in the last four years.

Considering that the £20 note is the most common note in this country, the introduction of a new banknote is a big deal. So, here are five important facts you should know about the new £20 in your pocket.

1. Who is on it

Following in the footsteps of William Shakespeare, Michael Faraday and Edward Elgar, the £20 note featuring economist Adam Smith was the most recent paper note introduced, back in 2007.

Now, the new polymer note will feature the acclaimed English artist JMW Turner, alongside a blue and gold design which depicts the Margate lighthouse and Turner Contemporary gallery, also located in Margate, where the artist grew up. 

Mark Carney, governor of the Bank of England, said: “Turner’s contribution to art extends well beyond his favourite stretch of shoreline.

“Turner’s painting was transformative, his influence spanned lifetimes, and his legacy endures today. The new £20 note celebrates Turner, his art and his legacy in all their radiant, colourful, evocative glory.”

2. Bring the note to life with Snapchat

The brand-new polymer £20 notes feature a self-portrait of Turner and one of his most celebrated paintings, The Fighting Temeraire.

However, in a first for a British banknote, these images can also be brought to life using augmented reality.

If you have a new £20 note and the Snapchat app, you can hover the camera in your smartphone over a Snapcode (like a QR code) on the banknote. By using Snapchat’s search function to find the £20 note lens, the paintings on the note will come to life.

The feature works by overlaying interactive images onto the banknote, in a similar way to how facial filters can be placed over a user’s face when using lenses in the Snapchat app.

“The launch of the new £20 will result in Turner’s paintings being amongst the most widely distributed artworks in the UK, maybe even the world,” said Ed Couchman, Snapchat’s UK general manager.

“We want to make sure that Snapchatters are encouraged to take note, look at the cash in their wallet and appreciate these great paintings. Hopefully, this partnership will help introduce a whole new generation to one of Britain’s greatest ever painters.”

3. Security features

As you would expect, the new £20 note has a range of security features which will help you to determine that your note is genuine:

• The hologram – If you tilt the front of the note, the word on the hologram will change from ‘Twenty’ to ‘Pounds’
• The window – If you look at the metallic image over the main window, the foil should be blue and gold on the front of the note and silver on the back. There is also a smaller window in the bottom corner of the note
• The Queen’s portrait – You should see a portrait of the Queen on the window with ‘£20 Bank of England’ printed twice around the edge
• Silver foil patch – A silver foil patch above the see-through window on the front of the note contains a 3D image of a crown
• Purple foil patch – On the back of the note, directly behind the raised silver crown on the front of the note, you will find a round, purple foil patch containing the letter ‘T’
• Raised print – On the front of the note, you can feel raised print on the words ‘Bank of England’ and in the bottom right corner, over the smaller window.
• Ultraviolet number – Under a good-quality ultraviolet light, the number ’20’ appears in bright red and green on the front of the note, against a duller background.

4. Serial numbers that could make the note worth more than face value

In the past, new £5 and £10 notes have sold for big sums if the serial number is of particular interest.

As the first new £20 notes enter circulation, it can pay to take a close look at the serial number on your note as it could be worth more than its £20 face value.

Every banknote is printed with a unique number. When the new £5 and £10 notes were released, the earliest ones to be printed had serial codes that began with AA01 followed by an eight-digit number, starting at 00000001.

These notes can be worth more than their face value. This may especially be true in this case if the serial codes also contain something of interest to collectors – perhaps JMW Turner’s year of birth (001775) or year of death (001851). 

5. What to do with old £20 notes

There is sometimes confusion when a new banknote is introduced, with many believing that the ‘old’ notes are immediately out of date.

However, the Bank of England is at pains to point out that the paper £20 notes remain legal tender.

You will still be able to use the paper £20 note until the Bank withdraws it from circulation. The Bank of England has confirmed that they will give six months’ notice of the withdrawal date of the existing £20 note.

Many banks will accept withdrawn notes as deposits from customers, while the Post Office may also accept withdrawn notes as a deposit into any bank account you can access at the Post Office. You can also exchange withdrawn notes with the Bank of England.

Back in 2017, more than 35,000 term life insurance policies paid out an average of more than £78,000. Nearly every claim was paid (98%) and tens of thousands of families/beneficiaries were supported following an unexpected bereavement, to the tune of £2.79 billion.

However, HM Revenue and Customs figures from the same tax year (2016/17) show that almost 8,000 life insurance policies with payouts worth £774 million fell into the Inheritance Tax net, triggering the 40% tax and an average bill of £37,500.

The number of life insurance policies which are subject to Inheritance Tax has risen in recent years, yet avoiding thousands of pounds of potential tax can be done simply through the completion of a form.

Families paying £300 million in unnecessary Inheritance Tax (IHT)

In 2016/17, families paid more than £300 million in Inheritance Tax on the proceeds of life insurance payouts.

This represents an 11% increase compared to the previous tax year, when more than 7,000 policies with payouts totalling more than £700 million resulted in £280m ending up in the hands of the Treasury.

If these policies had passed into a trust on the death of the policyholder, HM Revenue and Customs would not have been able to make a claim if they pushed an estate above the IHT threshold of £325,000.

Sean McCann of insurers NFU Mutual says: “The prospect of paying IHT on a life insurance policy that is supposed to protect your family should the worst happen is all too frequently a nasty surprise for thousands of bereaved families, and the latest numbers show more and more people are being caught out.

“But by contacting their provider and completing a trust form, families can potentially remove the threat of their loved ones facing a costly and unexpected bill.”

What does writing life insurance in trust mean?

A trust is a legal arrangement where the trust takes ownership of certain assets, such as the proceeds of a life insurance policy.

When you set up your life insurance, you appoint a trustee or trustees to oversee the trust. Often these are friends or family members, but they could also be someone like a solicitor. The trustees ensure any assets contained within the trust are passed to your named beneficiaries (often your partner or children).

When you place an asset in trust, you cede ownership of the asset to the trustees. The reason this is important is that, when you die, the life insurance policy is handled separately and does not form part of your estate. So, the proceeds of the policy will not be subject to IHT if the value of your estate exceeds the IHT threshold (currently £325,000).

Other benefits of writing life insurance in trust

A key benefit to writing life insurance in trust is that it ensures the proceeds don’t form part of your estate for IHT purposes.

Another reason to consider using a trust is that probate can be a lengthy process. By writing your life insurance in trust, it can reduce delays and ensure your beneficiaries receive the proceeds much more quickly.

This can be a huge benefit if you need to continue to meet commitments such as a mortgage, or to meet funeral or other expenses.

Another advantage of writing your life insurance in trust is that it gives you control over your assets. When you put your policy in trust you can decide who to appoint as both your beneficiaries and your trustees. You can choose trusted people to look after your assets, and choose where you want your money to go on your death.

Setting up a trust is particularly important if you’re not married or in a civil partnership. Without one, your assets may not transfer to the intended recipient.

How do you write a life insurance policy in trust?

Writing a life insurance policy in trust is easy. Most insurers give you this option when you take out the protection, and there is usually no charge for doing so. If you’re not sure, speak to your financial adviser or to the insurer and ask them to supply you with a trust form.

In the future, people taking out life insurance might not even have to complete a trust form. A report by the independent Office of Tax Simplification (OTS), commissioned by the former Chancellor Phillip Hammond, said that all life insurance policies should automatically pass into trust.

The OTS argue that this would make the system easier to understand and avoid people being unfairly caught out.

If you’re thinking of taking out life insurance, or you’re looking for advice about trusts, we can help. Please get in touch to find out how.

Please note

This is based on the current legislation (February 2020). Bear in mind, any changes to these rules, or to your personal circumstances could affect what you get in the future.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.